Indonesia spices up the global interest rate debate

INDONESIA has bolstered its credentials as an emerging market leader – at some potential cost. This week, the country took a surprising step to shore up its faltering currency by raising interest rates, and foreshadowed the tough choices confronting Asian economies in coming weeks.

Officials had hoped that hikes were well behind them, but the dollar hegemon in foreign-exchange markets had other ideas.

Policymakers can attempt to tough out this difficult moment and allow their exchange rates to deteriorate, perhaps significantly, or try to limit the decline and jeopardise some amount of growth.